The Chinese market is changing, but are Canadian companies adapting?

Stephen Jones has only sold three units in China thus far. But he’s convinced the country represents his company’s biggest market.

The Halifax-based company, Resolution Optics Inc., produces 3D microscopes, some of which are submersible in water. With China spending billions to monitor and restore its lakes and rivers, many of which are “massively polluted,” Mr. Jones sees huge potential for this equipment.

Although he’s only sold a few of the $35,000-microscopes in China, he contends that a recent agreement with one of China’s State Key Laboratories could boost sales significantly — perhaps up to 300 units in the next five years.

Mr. Jones is not walking blindly into the Chinese market, having previously developed Chinese sales for a medical research equipment company. That experience gave him an introduction to the nuances of Chinese business culture, which helped him secure a local distributor to sell his company’s microscopes. “It’s almost impossible to sell a product in China without having a Chinese distributor to represent you,” he said.

But one distributor is not enough. For reasons he does not fully grasp, customers in Hong Kong are reluctant to purchase from distributors in Mainland China. So he is teamed with two distributors: one in Hong Kong and one on the Mainland.

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Mr. Jones’s previous China experience also exposed him to the weight Chinese business leaders place on personal relationships. “It’s expected for me to make multiple trips over there, and it’s expected for me to give a guest lecture,” said Mr. Jones, who holds a PhD in physiology and biophysics. “It’s expected that the relationship is about more than a financial transaction.”

Gerry Pond, one of Canada’s top angel investors, says that many Canadian companies lack the international sales expertise to properly crack international markets, including China.

His Saint John, N.B.-based software company, Mariner Partners, now has sales offices in Paris, Istanbul, London and Dallas. But it wasn’t until recently that the company broke into international markets. The key move involved hiring five Canadian ex-pats who had worked in sales departments at big U.S. software firms.

“We struggled hard with international sales — until last year,” Mr. Pond said. “It’s meant a huge jump in customers… Our revenues this year are going to be the best ever.”

Mr. Pond, a prolific investor in East Coast startups, found that many of his investment companies were in need of international sales help. To help bridge the gap, he brought in a consultant. He is also trying to remedy the situation more broadly, by setting up an institute dedicated to training international sales and marketing specialists. Universities, at least in Atlantic Canada, have largely overlooked international sales training. So he’s willing to help fund an institute to fix the situation.

“I have to put money where my mouth is,” he said. “It would be the best investment I’ve made.”

Meantime, Frank Pho, vice-president of global expansion at the Business Development Bank of Canada in Vancouver, says Canadian companies must commit time and money to understanding the countries they want to enter. That’s particularly true in China, he added, where a “paradigm shift” has changed how foreign companies must approach that market.

The old Chinese sales model involved taking an established North American product and adapting it to the Chinese market, often by lowering the quality to make it less expensive.

Now, successful companies are tailoring their products for the Chinese middle class, which totals 300 million people. “That is 10 times the population in Canada. So why would I start by developing a product for 35 million people and then reinvent it to address a 300-million person market?” Mr. Pho says.

“That’s the paradigm shift. If you can take advantage of that, then you can become a powerhouse.”

He pointed to Samsung Electronics’s growing share of global mobile phone sales. The South Korean manufacturer is stealing market share from Apple, in part, by succeeding in foreign markets such as China.

“It’s a fundamental shift,” he says. “The Japanese and the Koreans understand that. But we are still behind that reality.”

Mr. Pho also notes that large-scale urbanization in China offers opportunity for clean tech companies, such as those focused on drinking water and wastewater.

That’s exactly what Mr. Jones is hoping for. “China will probably turn out to be our largest market,” says the Resolution Optics chief executive. “If we can prove our worth and if we can get on the right side of the government, then we have a pretty good chance.”